Inflation slowed in January to its tamest pace since May 2025 as the economy seemingly skirts the full effects of President Trump’s tariffs for now – helped by falling gasoline prices.
The Consumer Price Index rose 2.4% in January, undershooting expectations and decelerating to its pace last May – just a month after Trump unveiled steep “Liberation Day” tariffs that economists warned would reheat prices, the Bureau of Labor Statistics said Friday.
The core figure – which excludes volatile food and energy prices – decelerated to 2.5%, its coolest level since 2021.
Consumer inflation has been steadily inching down from a 3% peak in September, hitting 2.7% in December – though wholesale inflation has stayed hot at 3%.
But Friday’s report was tame considering prices typically spike in January, and it followed a surprisingly strong payrolls report earlier this week that found US employers added 130,000 jobs in the same month.
Following the report, traders priced in roughly 50% odds of three quarter-point rate cuts this year, or 63 basis points, on hopes that inflation will continue easing toward the Fed’s 2% goal. They had been pricing in 58 basis points worth of easing prior to the report.
“It won’t increase the likelihood of a rate cut within the next few months largely because of Wednesday’s blowout employment numbers, which threw ice cold water on any hopes of a near-term rate cut,” Skyler Weinand, chief investment officer at Regan Capital, said in a note Friday.
“The Fed is always in a tug of war between balancing inflation with employment, but they just can’t cut rates right now with the economy having just created a six-figure jobs number.”
Stocks were little changed on the day. The Dow Jones Industrial Average edged up 0.1%, and all three posted declines for the week.
Energy prices dragged down the headline number, falling 1.5% in January. Gasoline plummeted 3.2% in January – down 7.5% over the past 12 months.
The index for shelter – which is up 3% over the past 12 months – was the largest driver in January’s increase, though it only jumped 0.2% from the previous month.
Yet there are still some signs that inflation is weighing on certain categories, like food and airfares, as well as clothing – which is highly tariff-sensitive.
Food rose 0.2% in January. The category is up 2.9% over the year, and dining out is especially expensive – with food away from home up 4% on a yearly basis.
Americans were also hit with some higher prices at the grocery store. Cereals and bakery goods rose 1.2% in January from the previous month – up 3.1% over the year.
Travelers saw a massive 6.5% increase on airfares in January. Plane tickets are up 2.2% over the past 12 months.
Apparel rose 0.3% in January over the month. It is up 1.7% on a yearly basis.
New vehicles ticked up 0.1% in January from the previous month, though used cars and trucks fell 1.8%.
The Fed has been locked in wait-and-see mode as it absorbs conflicting economic signals, like strong growth and resilient consumer spending alongside heightened economic anxiety.
Though inflation has been cooling over the past few months, it has remained stubbornly above the central bank’s 2% goal. And job growth was dismal last year – adding just 15,000 jobs a month on average.
